What Are Seller Concessions and How Do They Work? 

If you are thinking about buying a home in today’s market, you are in a stronger negotiating position than you may think. We are currently experiencing a buyer’s market. With more homes hitting the market, buyers now have more options and more leverage in negotiations than they’ve had in recent years. This shift gives buyers an opportunity to request seller concessions to close the deal on a more affordable transaction.

Seller concessions are an effective method to leverage upfront costs. Instead of solely negotiating on the sales price, buyers can request that the seller help cover certain closing costs on their behalf. This can reduce the amount of cash you need to bring to closing and create more flexibility in how your loan is structured. 

That is why it is important to understand how seller concessions work and how they fit into your buying strategy, so you can write a smarter offer, especially in a market where buyers have more power to negotiate. 

What Are Seller Concessions?  

Seller concessions are the costs that the seller of the home agrees to pay on the buyer’s behalf at closing. Instead of the buyer paying all the closing costs out of pocket, the seller contributes a negotiated amount to reduce the buyer’s expenses. 

Seller concessions typically apply to closing costs, not toward the down payment. They are negotiated during the contract phase and clearly outlined in the purchase agreement.  

Seller concessions can: 

• Lower the total amount you need at closing 

• Create flexibility to potentially buy down your interest rate 

• Improve overall affordability 

In a buyer’s market, sellers may be more willing to contribute toward closing costs rather than reducing the sales price. For buyers, this can be a strategic way to preserve cash while still making a strong offer. 

How Do Seller Concessions Affect Closing Costs?  

Closing costs are the fees required to finalize your mortgage and transfer ownership of the home. These costs can quickly add up, often totaling thousands of dollars. Seller concessions help buyers reduce the amount they need to bring to closing.   

Seller concessions are negotiated as part of your purchase offer. For example, a buyer can submit an offer and ask the seller to contribute a specific dollar amount or percentage toward closing costs. If the seller agrees, the concession is written into the contract. At closing, the agreed contribution is applied to the eligible closing costs.  

Seller concessions can help cover common closing costs, including: 

• Loan origination fees 

• Appraisal and underwriting fees 

• Title services and title insurance 

• Recording fees 

• Prepaid property taxes and homeowners’ insurance 

• Discount points to help lower the interest rate 

It is important to clarify that seller concessions help with out-of-pocket closing costs. They do not reduce your loan balance. However, with the right market conditions, they can provide financial relief and make homeownership more accessible for buyers, especially first-time homebuyers, who are trying to save more.

Loan Program Limits on Seller Concessions   

Your loan type and down payment amount directly impact how much a seller can contribute towards your closing costs. Every mortgage program sets limits that determine the maximum contribution allowed to protect both the buyer and the seller.  

Here’s how loan programs influence your seller concessions: 

Loan Type	Maximum contribution
Conventional Loan	3-9% depending on down payment
FHA Loan	Up to 6%
VA Loan	Up to 4%
USDA Loan	Up to 6%

It is important to remember that these limits apply to lower parts of the purchase price or appraised value. Seller concessions can only be used towards permissible closing costs and prepaid items, not the down payment. Exceeding the limits or wrongly applying concessions can negatively impact your loan approval or structure. So, make sure you are working with a trusted lender to avoid making these mistakes that may end up costing you more.  

When Buyers Can Ask for Seller Concessions   

Seller concessions are not available for every buyer in every situation. You must be buying a home with the right market conditions, along with several other components.  

Buyers may have a strong opportunity to request seller concessions when…  

• The home has been on the market for an extended period of time. 

• There are fewer competing offers.  

• The seller wants to close quickly.  

• The home needs a lot of updates or repairs.  

Every home purchase is unique, and the ability to negotiate seller concessions is dependent on many factors. That is why working with an experienced loan officer can help you determine if you are in a position to request seller concessions. 

If you are preparing to buy a home and want to understand how seller concessions can be a beneficial negotiation tool that can help you save money, connect with a First Heritage Mortgage loan officer today!  

We are here to help you make informed decisions every step of the way.